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Eliminating choice impoverishes society

By Ross Farrelly - posted Monday, 10 July 2006


In his book The Wisdom of Crowds, James Surowiecki argues that complex problems should not be tackled by small homogenous committees, but by large crowds of people who have the means to pool their collective wisdom.

In the context of education say, this would mean that market forces which harness the choice of the entire parent body of the state would do a better job of developing a refining school curricula than a government appointed committee. Surowiecki argues that markets have a remarkable ability of making hard decisions quickly and accurately.

He retells how, on the day of the Challenger space disaster, the market wiped 12 per cent off the value of the stocks of Morton Thiokul, the company which built the solid fuel booster, thereby passing its judgment on which company was most responsible for the disaster. Six months later the presidential commission of inquiry into the disaster concurred with the market’s verdict.

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Individual choice is also the most efficient way to transform cash into goods and services. Consider the following three methods of spending:

  • method one: X spends Y’s cash on goods and services which will be consumed by Z;
  • method two: X spends Y’s cash on good and services which will be consumed by Y; and
  • method three: X spends X’s cash on goods and services which will be consumed by X.

Methods one and two are obviously less efficient that method three. When X spends Y’s cash X is not motivated to be as frugal as when X spends own money. When X buys goods and services on behalf of Y, X may not make selection which exactly fits the needs of Y. In method three, X knows exactly what X needs and is motivated is find the most cost effective solution. Furthermore, all of X’s cash is used to procure the goods and service and none is wasted on paying Y’s salary.

Government spending is a mixture of methods one and two while individual choice and the free market closely resemble method three.

Choice is a powerful engine for excellence and innovation and an efficient means of expressing consumers’ needs. But with choice comes responsibility, the responsibility to be informed, to be wary and to choose wisely.

There is also a responsibility to have control over one’s desires and to resist the resentment or envy which can arise when confronted with choices beyond one’s means. Having the self-discipline to live within one’s means and to increase one’s income through legitimate avenues and appropriate risk taking rather than resorting to crime or foolhardy gambling is a responsibility citizens in a free market must discipline themselves to exercise.

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About the Author

Ross Farrelly works for a statistical software company. His blog can be found at rossfarrelly.blogspot.com.

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